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FCA finds consolidators not considering client needs


The FCA is disappointed that none of the firms it assessed as part of a supervision exercise into advice businesses acquiring clients from other firms could “consistently” show clients’ needs were suitably considered.

According to a supervision review report published by the regulator today, the FCA found that, while firms focused on the commercial benefits, they did not focus enough on how clients were impacted by the acquisition.

The FCA undertook a “targeted review” of six firms after identifying nine. It acknowledged the sample used in the report “may not be representative” of the wider market.

In its report, the regulator says that where firms had considered potential disadvantages to clients and designed processes to mitigate these, that approach was not consistent across all of the aspects assessed by the FCA.

It says: “This resulted in a potential detriment for clients whose needs had not been appropriately considered. Our outcomes testing of replacement business did not indicate widespread common themes of unsuitability. However, we did identify individual areas requiring improvement for many of the firms assessed.”

On client communication, the FCA found issues including that details of services and charges for the new firm were not given to clients at the start of the relationship, that differences between the services of the previous firm and the new firm were not explained, and that clients were not told they could opt out of ongoing services the acquiring firms intended to provide.

Clients were also not told how they could complain about advice given by the original firm.

The report says that during the review, the regulator discovered firms had acquired client banks in circumstances where the original client agreement to provide and charge for ongoing services was no longer valid for services offered by the new firm.

The report says: “This was because the original agreement was between only the outgoing firm and the client and so the new firm was not party to it. Where a new agreement was required, firms did not always ensure they had the client’s agreement before arranging for facilitated adviser charges to be redirected to their own bank accounts.”

The review also looked into conflicts of interest, with the FCA explaining that its existing rules require firms to consider whether the structure of the payments offered to vendors in the period leading up to the acquisition could be an inducement to the vendor.

The report says: “The rules also require firms to consider if this payment structure creates bias towards particular investments, putting them in breach of the adviser charging rules. We saw instances where the acquiring firm offered to pay more money when clients held specific investments.”

The FCA says it has provided feedback to the firms assessed in the review and that all firms involved in the project have taken action to improve their practices.



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Having acquired several firms in the last 6 years I’m not surprised by these findings

    It’s all about taking the clients on a journey. That journey will start a long way before seller/purchaser get anywhere near the legal stage

    As an example the initial letter from the seller should be one to clients outlining the adviser’s retirement/exit plans . This letter allows clients to ask questions and look for reassurance.

    Just as important is keeping the seller in the equation both pre and post-acquisition. I fail to understand why an acquiring firm sees the seller as a threat post sale. Clients trust their adviser, they still trust him/her post purchase. There’s not going to be some sudden change of allegiance. The value of an IFA business is the adviser not the FUM.

    Most acquisition firms have an ulterior motive. They tend to have their own funds/platform etc. – it’s obviously going to cause a conflict of interest. Before you ask, Nexus doesn’t. Most firms we speak to have a good book and past advice is sound both in terms of recommendation and product range. There’s no need to start pulling it all apart. The FCA have a word for it – it’s called shoehorning.


  2. Not a particularly well informed comment above ‘ulterior motive’!

    One asssumes Nexus simply bought firms to improve the lives of selling advisers and make the world a better place? Frankly the chances are they have! By all accounts a descent firm run by descent people. So why cast aspersions at others in the consoloadatoon space?

    It’s time we all showed each other a little more respect, perhaps then the wider general pi\ublic, politicians and the regulators would start to do the same.

  3. i 3rd April 2017 at 8:14 pm

    Consolidating – is about bringing together a clients plans after looking at the clients objectives – to see how best they can be met. Then and after discussion with the client on charges and cost of moving, the benefits currently provided against the flexibility and benefits provided by the consolidation, and the benefits of time and administration by the new provider ( IE lack of protracted delays general incompetence and lack of help or consideration form insurance companies ( who have their own agenda ) and agreement of the client, consolidation can take place. Savings in time and effort is a great measure by which the client benefits. Flexibility of contract new and inclusive administration by high quality employees removing anxiety and delivering confidence – is often overlooked by regualtors. Unfortunately the consolidators of Nationwide Barclay/Lloyds/HBoS/TSB – and some reckless brokers/IFA’s, and DFM’s are more interested in gaining ” Assets Under Management ” from which they can charge up to 6% or more ( with some principals e.g Standard Life ) = where it is all about the commissions. Churning is the way they ” Manage” their clients remuneration package, their Commissions – their fees encouraged from the top of their Pyramid Selling Regime – with bonuses paid down through the employees and sales people. Tied Agents and Restricted Advisers are more likely to operate these simple scams left unchecked under FCA as Regulators. The lackof Corporate Governance in Financial Institutions e.g Banks * See SFO and Dysfunctional Insurance companies, wrap accounts and Discretionary Fund Managers E.G Quilters Cheviot who have been bought and sold regularly over the last few years. The purchase of a client bank the segregation of clients and separation of clients E.G. Scottish Widows – because they knew, the volume of business they could not cope – they could not handle the numbers of clients, they could not provide the same or better service. The result is they keep the best most profitable – the vulnerable profitable clients and dump the rest . They call it segregation. The system is referred to under FCA as ” Treating Customers Fairly “. It is the American way Pile em High charge extortionate fees by way of commissions – then dump them under the 80 /20 rule. It is the Hunting syndrome, not farmers or looking after clients best long term needs. Hunters, predators, in banks insurance companies and some restricted advisers businesses instead of carrying out their fiduciary duties = or being Committed or Caring for their clients. Evidence of these strategies is all around just look into banks sales practices, bullying, intimidation and the theft of clients portfolios by high unnecessary charges – the transfer of clients hard earned savings to the Financial Adviser of Financial Institution. It has been going on for decades under the Pyramid Selling Structures and Multi level marketing

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